Trade Cases

WTO Disappointed in Members Ignoring Requests to Report Their Subsidies

Written by Sandy Williams

The World Trade Organization requires members to inform the organization of any domestic subsidy programs they are providing to industries. The WTO said compliance with the obligation to notify “remains discouraging low.”

“As of today, a total of 89 members have not yet made their 2015 new and full subsidy notification, for which the deadline was 30 June 2015,” said Jin-dong Kim, the chair of the WTO’s Committee on Subsidies and Countervailing Measures (SCM Committee. “And 63 members still have not made their 2013 new and full subsidy notification, although the deadline was more than three years ago.”

According to Kim in WTO news dated Oct. 25, 57 members have not submitted their 2011 notifications and many members have “either have never notified or have done so only in the distant past.”

The WTO relies on the notifications in order to be effective in settling disputes and levying WTO subsidy disciplines. Article 25 of the SCM Agreement says members must notify the WTO of any subsidy that is granted or maintained within their territories by no later than June 30 of each year.

“The chronic low compliance with the fundamental transparency obligation to notify subsidies constitutes a serious problem in the proper functioning of the (SCM) Agreement,” said Kim.

Subsidies and Industrial Overcapacity

During the G-20 meetings in Hangzhou, China in September, members raised the issue of how subsidies contribute to industrial overcapacity. The United States has long asserted that Chinese subsidies to their steel industry allow the producers to export steel products to the U.S. below fair market prices.

A call was made by the EU, with support by Canada, Korea and Australia, for increased information sharing and cooperation regarding excess industrial capacity in steel and other sectors. Three discussion questions were proposed:

  • To what extent have subsidies contributed to the creation of excess capacity?
  • What are the specific government or business practices that have contributed to the creation of excess capacity?
  • In what areas are current disciplines under the WTO’s SCM Agreement incomplete or inadequate to address these practices?

The EU maintains that it is an “unescapable fact” that certain subsidies play a role in overcapacity, causing problems for the global economy. The problem was judged especially acute in the steel and aluminum sectors.

Other members of the G-20 disagreed. China said overcapacity is a problem but is due to slow global recovery. Brazil and Russia agreed that overcapacity was a problem but that it should be analyzed in another type of global forum. The proposal by the EU failed to make it to committee discussion.

The definition of what constitutes a subsidy can vary depending on the nation involved. The WTO chairman thanked China for submitting their notification of subsidies at the sub-central level. The United States, however, claimed that China had subsidies which its government had failed to report, many of which were related to the fisheries sector. China in response said that many of the measures identified by the U.S. are not subsidies, just part of the guidance in China’s five-year plans. 

Subsidy Notification Requirements by the WTO under the SCM Agreement

Under Article 25 of the SCM Agreement, members must notify any subsidy — as defined under Articles 1.1 and 2 of the Agreement — that is granted or maintained within their territories. Members must submit subsidy notifications no later than 30 June of each year.

Under Article 27.5 of the SCM Agreement, a developing country member which has reached export competitiveness in any given product shall phase out its export subsidies for such product(s).

Article 25.10 states: Any Member which considers that any measure of another Member having the effects of a subsidy has not been notified in accordance with the provisions of paragraph 1 of Article XVI of GATT 1994 and this Article may bring the matter to the attention of such other Member. If the alleged subsidy is not thereafter notified promptly, such Member may itself bring the alleged subsidy in question to the notice of the Committee.

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